The National Bank of Kazakhstan’s (NBK) recent monetary normalization–which upped the refinancing rate for the first time in eighteen months by 50 points to 7.5% in March, a move it will probably repeat in Q2 though when considering Kazakhstan always watch to first see what the Russians do)–along with hawkish comments from chairman Grigoriy Marchenko that “it could raise the full-year inflation forecast” for 2011 from the current 6-8% range, signal a fairly compelling case for further tenge (KZT) appreciation against the dollar (a trade expressed via NDFs) despite some $ in intervention designed to offset foreign capital inflows tied to the country’s net oil exports of 1.5 mb/d that have pushed the 12m rolling current account balance well into surplus.  While the NBK is mindful of rapid appreciation, said concern lies (rightfully) secondary in our view to inflation which, as myriad EM (like Russia!) bank governors worldwide can attest, may be one reason to let domestic currency purchasing power ascend.  Consumer prices in Kazakhstan rose 7.8% last year, compared with 6.2% in 2009, on the back of food prices–which spiked following a poor summer grain harvest–recent fuel price increases, and strengthening consumer demand (retail sales jumped 12.3% last year as gains stemming from robust industrial production numbers–up 10%y/y– passed through to wages) underpinned in part by the state’s social programs.  Aggressive intervention would only serve to exacerbate these inflationary trends, undermine the (recently re-elected) President’s mandated budgetary largesse from several months earlier and overall run contrary with the Balassa-Samuelson thesis.  Finally, as some observers have noted KZT strength only encourages further de-dollarization, a necessary step in the IMF’s eyes towards achieving domestic capital market maturation.